[jurialmunkey]

Sorry also in the above I made an error with syntax - the fanart and blur images should be controltype="image" not "texture" - if you copied my code verbatim that's what your issue likely is. I just wrote that as an example of how to achieve what I did, not as code to be copied directly.

I didn't use a diffuse for testing so it cant failure there. I also test it with controltype image but I can test it again. The failure is that the image will be not blur.

Do you have colorbox installed? Does blur work if you use another skin that supports colorbox?
Also, if you make changes to Startup.xml you need to restart kodi for them to take effect.